Rhone Mediterranee Compagnia Francese v. Lauro

Rhone Mediterranee Compagnia Francese di Assicurazioni E Riassicurazioni (Rhone) (plaintiff) insured and reimbursed Costa Armatori S.P.A. (Costa) for property loss resulting from fire damage to a boat leased by Costa. Rhone sued the owner of the boat, Achille Lauro, and its master, Antonio Scotto di Carlo (collectively, Lauro) (defendants) for breach of the Lauro-Costa lease agreement, unseaworthiness, and boat-crew negligence. The lease agreement contained an arbitration clause requiring arbitration in Italy, with each party being allowed to designate one arbitrator. The agreement also provided that, if the two chosen arbitrators could not agree on an award, those arbitrators could appoint a third person to make the final decision. Article II of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (convention), which is incorporated into the Federal Arbitration Act, required that the “Contracting State” refer parties to arbitration unless the arbitration agreement was null and void. Article V of the convention stated that either the law chosen by the parties or the law of the arbitration forum determined whether an award could be enforced. Lauro moved to stay the lawsuit in favor of arbitration, and Rhone opposed. Rhone argued that the choice-of-law rule in Article V applied to Article II and therefore the law of the forum, Italy, governed the agreement. Rhone argued that, under Italian law, arbitration clauses requiring an even number of arbitrators were null and void even when a tiebreaker could be appointed. Lauro countered that Article II permitted the forum responsible for deciding whether the case should be arbitrated to apply its own law when determining the validity of the agreement. The United States District Court for the District of the Virgin Islands granted Lauro’s motion to stay, and Costa appealed.